DALLAS - The Texas Public Finance Authority will give investors a chance to grab some of its general obligation debt this week as the agency issues $225 million of bonds for refunding and new money.
The negotiated deal is led by Piper Jaffray & Co. with co-managers Estrada Hinojosa & Co., JPMorgan, Merrill Lynch & Co., Morgan Keegan & Co., Morgan Stanley, RBC Capital Markets, Siebert Brandford Shank & Co., and Stone & Youngberg LLC.
Coastal Securities serves as financial adviser, with Vinson & Elkins LLPas bond counsel.
The fixed-rate bonds carry ratings of AA from Standard & Poor's, Aa1 from Moody's Investors Service, and AA-plus from Fitch Ratings. The bonds will not be insured.
State officials expect strong demand for the tax-exempt debt, even though Texas itself has no state income tax.
Proceeds from the sale will be used to refund Series 1998B bonds callable on Oct. 1 that were scheduled to mature annually from 2009 to 2015. The 1998 bonds were issued for construction of facilities for the Texas Department of Criminal Justice, the Texas Department of Mental Health and Mental Retardation, and the Texas Youth Commission.
The 2008A issue will also be used for buying land, along with construction and repair of facilities for the Texas Department of Public Safety and expansion of crime labs in Abilene, Corpus Christi, El Paso, Tyler, Austin, Houston, and Lubbock.
The crime lab issue became a front-page story in many Texas cities when reports of six-month backlogs on processing evidence in major felonies surfaced. At the same time, several inmates have been released in recent years when retesting of DNA evidence exonerated them of the crimes for which they were imprisoned.
In the 2007 session of the Texas Legislature, lawmakers provided the Department of Public Safety enough money to hire 46 new forensic examiners. Lacking space for those new examiners, lawmakers also submitted Proposition 4, providing $88 million for lab construction, for voter approval in November.
That money was part of $1 billion of GOs approved by voters for the Texas Parks and Wildlife Department, the Texas Facilities Commission, the Department of State Health Services, the Texas Historical Commission, and other agencies.
In the same election, voters gave the Texas Transportation Commission $5 billion of GO bond authority to cope with growing transportation needs and $3 billion of GOs to fund cancer research programs in the state. None of the debt has come to market yet.
Created in 1984 to succeed the Texas Public Building Authority, the TPFA handles most general obligation debt not used for water or transportation. The authority is governed by a board of directors and managed by executive director Kimberly K. Edwards, who has held the position since 1997.
This week's bond sale is the second of the year for TPFA, which issued $15.5 million of revenue refunding bonds for Midwestern State University in Wichita Falls. Those bonds carried a rating one notch lower because of the need for annual appropriations and the risk that rents could fall short of debt service.
The TPFA deal also comes about a month after the Texas Water Development Board floated a $258 million issue that carried triple-A ratings from all three rating agencies based on the underlying credits of the loan recipients as well as the state's backing of the debt.
In rating this week's TPFA deal, analysts considered the state's overall fiscal condition, noting that the Texas economy is still outperforming the nation's.
"The Texas economy continues to grow strongly, driven by strong energy markets, the state's important position in trade and transportation routes, and solid population growth," Moody's analysts observed. "Year-to-date, Texas' employment growth is notably robust compared to national trends: through April it has increased by 2.4% while U.S. growth is only 0.5%."
Personal income growth hit 5.8% in 2007 compared to 5.2% nationally, and Texans' average per capita income is at 96.3% of the U.S. average, ranking 21st among states. While Texas' unemployment rate is usually higher than the U.S. level, that pattern has changed as energy markets have strengthened and the national economy slowed, analysts said.
Once dominated by oil and gas drilling and production, Texas' economic base has broadened as other sectors have grown, including construction, services, and technology and computer manufacturing. While oil- and gas-related revenue accounted for about 24% of the state's tax revenue in 1980, based on fiscal 2007 collections, they are 8% of the general revenue tax collections.
"Although the Texas economy overall is now less susceptible to energy market fluctuations than it once was, currently high oil and natural gas prices illustrate that they still play an important role in the state's finances, bolstering the state economy during the early 2000s fiscal downturn when manufacturing and technology saw significant job losses, and driving much of its current growth," Moody's analysts wrote.
Texas issuers in the first half of 2008 sold $23.5 billion of bonds compared to $22.4 billion in the first half of 2007, an increase of nearly 5%, according to Thomson Reuters.
